What can explain the failure of relative PPP to hold in reality?
What will be an ideal response?
Government measures of the price level differ from country to country.
One reason for these differences is that people living in different countries spend their income in different ways.
Because of this inherent difference among countries, certain baskets will be affected more by price changes given their consumptions basket. For example, consumers in country, X, eats more fish relative to another country. More than likely, the government, upon determining a commodity basket to reflect preference, will have an overwhelming representation of fish in their basket. Any price level change in the fish market will be felt particularly by country X, and their overall price level will reflect this. Thus, changes in the relative prices of basket components can cause relative PPP to become distorted.
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Which of the following is the outcome of the lemons problem in the used-car market?
A) Only low-quality cars will be traded in the market. B) Only high-quality cars will be traded in the market. C) Both low-quality and high-quality cars will be traded in the market. D) No cars will be traded in the market.
Today, the most common exchange rate arrangement in the world is
A) the fixed exchange rate system. B) the gold standard system. C) the managed floating system. D) the freely floating exchange rate system.
If 400 apple pies are sold at $4 per pie, but 500 apple pies are sold at $3 per pie, we know from the total revenue rule: a. that the demand for pies is elastic over that price range
b. that the demand for pies is inelastic over that price range. c. that the demand for pies is unit elastic over that price range. d. nothing about the elasticity of demand.
It is purely by chance that what producers intend to produce for consumption will equal what consumers intend to consume
Indicate whether the statement is true or false